The U.S. peanut market wants to grow and expand, but the market’s dynamics seem to have adjusted to one step forward and two steps back. The industry tries to minimize risks, but many unknowns have all segments nervous, and answers are needed so a true, fair market can prevail.
Lots of questions remain to be answered on the 2014 crop. How has drought impacted quantity and quality in Georgia, Florida, Alabama and South Carolina where 80 percent of the peanuts are grown? How bad will aflatoxin be? Can U.S. peanuts meet European Union quality requirements and keep that momentum?
Blanching capacity is maxed out and on-time delivery may be a problem. The logistics of keeping good quality irrigated peanuts separate from dryland peanuts is a challenge at the buying point and sheller. Another unknown is farmer-stock contracts. Today, peanut contracts are a mystifying dilemma. The shellers are trying to find a balance…buy a reasonable supply of peanuts at a reasonable price for their customers while keeping the farmer profitable.
About 50 percent of the 2014 peanut crop is not contracted. Should the farmer accept a possible $425 per ton or place in the loan for $355 per ton and wait until later? Shellers are reluctant to offer higher prices as it could encourage more plantings next season.
Cultivatable land is limited and the farmer must decide what to plant and how much. With corn, cotton and soybeans at record low prices, peanut contracts offered by the sheller will impact acreage planted to peanuts, especially next season. The farmers have some safeguard with a program minimum of $355 per ton paid at delivery and can market the peanuts from storage within nine months. What if all the commodity options were profitable and rotations could be made to maximize yields?
Another issue is the 2014 Farm Bill. Options keep coming and the farmer has to first figure out how to payout this year, then plan for next year when all the cards have not been dealt. The peanut program was supposed to bring stability. That seems like a joke with the boom and bust of the last two years and no end in that volatility when looking ahead.
Farmers with a peanut or farm base must visit their Farm Service Agency office to update yields and reallocate base acres. Then come the options…Agriculture Risk Coverage or Price Loss Coverage plus a new peanut revenue program that has another choice of yield protection or revenue protection or revenue production with a harvest price exclusion… all unknowns.
While the market is trying to absorb this, the old market loan assistance program changes with a new $535 per ton reference price, formerly the $495 target price. If a farm does not have a base, this does not apply, yet the contract prices and acreage are influenced for the entire industry. Many farmers have reported that the payment limits in the new bill will eliminate most peanut farmers from participating or saving the farm in the new Farm Bill.
Meanwhile, markets are dealing with estimates and deliveries of old crop peanuts. Pricing the new 2014 crop is non-existent. The U.S. peanut crop for 2014/15 is now estimated at 2,491,050 tons based on harvesting 1,307,000 acres averaging 3,800 pounds per acre.
Production is estimated to be up 19 percent over last year and acreage is up 25 percent. The supply chart now shows beginning stocks of 926,000 tons plus 2014 production or a total U.S. supply of 3,417,050 tons. The October estimate was almost the same as September as the trade thinks the drought will lower USDA’s figures.
U.S. And World Demand
Domestic food use for peanuts is predicted to increase 1.8 percent for the year, but posted a 2.1 percent increase last year. All categories showed an increase: peanuts in candy up 3.6 percent, peanut snacks are up 7.3 percent, peanut butter is up one percent and in-shells had a 0.2 percent increase. Peanuts are still a great buy, a super nutritious product and consumers are more aware of this and are helping the peanut industry to grow.
USA peanut exports are doing remarkable, down only slightly from the record last year. Peanut butter exports are up an amazing 21 percent, rawshelled peanuts are down only 5.4 percent for the year, but were up 11 percent in July. In-shell shipments were down 26 percent for the year, but July was up six percent.
U.S. peanuts are the lowest-priced origin peanuts as Argentine offers are higher after a tough growing season. New crop prices in Argentina are the lowest in the past four years. Their farmers are facing what U.S. farmers may face in the spring: No crops look profitable on paper. China has returned to the market with down acreage and the 28 percent duty is stalling U.S. shipments to China.
Overall, the peanut industry senses an expanding and growing market with consumers liking their product and a government program that could encourage expansion. To be successful, all segments have to be profitable. The time has come to examine all of the options, especially farmers, plug in a profitable plan for farmers, buying points, shellers and manufacturers. Stay tuned. Of all the years in peanuts, this next year should be an exciting one.